Comex Gold Pares Some Gains After Yellen Prepared Testimony

(Kitco News) - Gold futures pared their gains but remained in positive territory Tuesday morning despite written testimony from new Federal Reserve Chairwoman Janet Yellen hinting that policy-makers will continue to taper their bond-buying program known as quantitative easing.

The April contract hit a two- and one-half-month high on the Comex division of the New York Mercantile Exchange about half an hour before the release of Yellen’s prepared testimony for the House Financial Services Committee. She is scheduled to appear before the panel at 10 a.m. EST.

The new Fed chief indicated tapering is likely to continue if the economic recovery remains on track, although she also said there was not a preset course for the scale-back of quantitative easing. Going into her testimony, market participants were watching to see if there would be any signs that the Fed might stop tapering after two weak monthly employment reports in a row, although most economists and strategists did not expect the Fed to alter its course yet.

As of 9:16 a.m. EST, gold for April delivery was $2.90 higher to $1,277.60 per ounce. Two minutes ahead of Yellen’s prepared testimony, the contract had been at $1,284.30 after peaking earlier at $1,288.30.

A New York desk trader chalked up the pullback to Yellen’s comments, although calling the moves in this and other markets “knee-jerk” reactions.

“What she said is they expect to continue to roll back the bond purchases,” the trader said. “So the dreaded tapering is still scheduled. That’s what knocked the gold down.”

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Kevin Grady, owner of Phoenix Futures and Options LLC on the Comex floor, said gold could be in for a “very tentative day” and the market’s reaction to Yellen could be a “work in progress.”

“People were looking for very dovish comments,” Grady said. “Gold was bid up on it and we’re not seeing the exact phrasing people would like which is why we’ve come off (the highs).”

He said strong physical buying has occurred under the market, and there appears to be a shift in Comex open interest from funds being short to being neutral to long.

“We need to watch how this (Yellen’s speech) plays out,” Grady said. “We’ve seen some price appreciation and we could run into resistance if we get over $1,300. The $1,306 level is the 200-day moving average.

“But you see physical buying dry up when you go higher, so I think we’re going to have a very hard time going higher. We’ll climb a wall of worry from $1,306 to $1,325. There’s really big resistance there.

“We have had nine days of higher lows, which is positive. The charts look strong and we had high volume, but I don’t know if it can be sustained.

Gold’s done well; a lot of people came in when the stock market was crushed 7% after being up 30%.”

The key will be the taper, Grady continued, saying the Federal Reserve won’t want to see the stock market sell off 10% in the first quarter.

“We could see a slowdown in the taper if we continue to see the stock market sell-off,” he said. “A lot of people are thinking maybe we’ll see a more staggered taper, maybe let the market absorb the $65 billion.

“Right now things are very choppy (in early gold trading). Now people are going to wait for the Q&A (question-and-answer session) and we’ll see what gold will do. We had really good volume already -- 72,000 contracts so far and it (wasn’t) even 9 o’clock. We also had a lot of activity overnight on people expecting her to be more dovish.”

Another New York trader said the market remains on firmer footing after building on its recent technical-chart-based gains. He cited continued demand around the globe, in particular mentioning news reports early this week that Chinese consumption jumped 41% to 1,176.4 metric tons in 2013.

“The market has been moving up,” he said. “It’s been technically strong for some weeks now, and the last couple of days especially.”